Melbourne's property market has experienced a bumper year, but some experts warn the current growth trajectory will eventually turn.

Concerns were raised on Wednesday that a Reserve Bank decision to raise the cash rate could trigger a housing market correction.

Wakelin Property Advisory director Paul Nugent agreed that the market would not and could not continue to achieve the same amount of growth recorded in recent times. He believes the market will level out.

Mr Nugent's comments echo the sentiment of ANZ chairman David Gonski, who told the Australian British Chamber of Commerce on Wednesday that the property market would eventually experience a correction.

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According to figures released by RP Data on Monday, Melbourne house prices leapt by 6.4 per cent over the three months to the end of August despite winter typically being a slower time for property.

But Domain Group data released today shows that price growth is moderating in capital city markets.

Domain Group's senior economist Andrew Wilson pointed out that Melbourne had risen 2.2 per cent over the first half this year.

The State of the Market Report for spring predicts that the median house price would lift between just 3 to 5 per cent this financial year. Melbourne buyer's agent David Morrell, of Morrell & Koren, said some segments of the market would soften first. "Clearly the outer suburbs and the apartment market will adjust a lot quicker, and lot more aggressively," he said.

While sales director Arch Staver, of Nelson Alexander, believes there could be a moderation in prices growth, he has not seen a "dramatic" correction even when there had been significant upswings in the property market over the past 12 years. "In the mortgage-belt suburbs, where employment issues may be more significant, it may have a more dramatic impact on buyers' ability to pay certain prices," he said.

Account manager Eliza Vesey, 30, and her husband Tim, like many prospective home buyers, are house hunting this spring.

They recently sold their two-bedroom apartment in Prahran and are hoping to upgrade to a house nearby to accommodate their growing family. Having already missed out at a handful of auctions, Mrs Vesey said they might have to rent in the meantime and try again next spring. "Houses are definitely going for much more than people are expecting at the moment," she said. "We've got nine [auctions] to go to over the next two weeks, and then we're renting after that."

58 comments so far

This article will breathe life into all the Chicken Littles!

Commenter

Pablo

Location

Willy

Date and time

September 04, 2014, 6:52AM

Ridiculous prices.

Commenter

The Other Guy1

Location

Date and time

September 04, 2014, 7:47AM

Supply is slow, demand is high and buyers are fighting for space.

These articles come out every year just in time for the spring auctions. I am sure the same naysayers can't be that gullible each and every year...

The sky is falling; but prices are not.

Commenter

ESP

Date and time

September 04, 2014, 7:59AM

Agreed. I've been reading this article on a twice, sometimes three times yearly basis since I bought my house seven years ago and if I'd taken notice of it any time between then and now I'd be quite a fool. There is a reason people invest in property. Sensibly. If you choose to take a highly leveraged loan with obscene repayment terms based on getting rich quick, I would suggest a ponzi scheme as you can dispose of your money more rapidly.

Commenter

Invest smart and wise.

Date and time

September 04, 2014, 8:26AM

Some of the worlds most expensive (and garbage) housing, a market dramatically distorted by unprecedented and unchecked Asia development and investment (often sight unseen, they don't even know what they've bought). Massive and unprecedented levels of investment by "baby boomer" and their cashed up self managed super funds, acquired by a lifetimes savings, and now massively exposed. The lure of tax avoidance through negative gearing (only in Australia do the wealthy get a "leg up"). Traditional home purchasers and first home buyers being squeezed out of the market in escalating numbers. Rental vacancy rates climbing and unknown numbers of rental properties being deliberately left vacant. Land banking. Governments talking up declining economic reality whilst "asleep at the wheel". Matthew Guy approving anything with four (even windowless) walls. Nothing wrong with this picture Pablo? Prices can only go up? We have entered an unprecedented real estate environment in a country with declining economic prospects and increasing unemployment. Onwards and upwards Pablo, wise investors read economic signs and move their money to opportunities, the don't read the stars and listen to estate agents. Locking vast sums in difficult to move property, particularly in a declining market, does not always make sense. Believe me Pablo, real estate can fall, and dramatically, witness the British, European and United States experience, and they still haven't recovered.

Commenter

Neil (not on radio) Mitchell

Location

Melbourne

Date and time

September 04, 2014, 8:34AM

Neil 'not on the radio' Mitchell - what did you have in your wheaties this morning? I made no mention of prices,windowless shoeboxes, planning ministers or whatever else you imagined I said or was thinking.As an experienced property investor for over 30 years I am painfully aware of the pitfalls of intemperate activity in the property market and know all too well that property prices do in fact fluctuate as they surely will in a 'free' market, notwithstanding the artificial props put in place by all persuasions of government.Also as a teacher of economics and commercial subjects I am quite able to decipher the babble-speak coming out of the RBA and other comentators.As for Gonski telling us what we already should know (only a fool thinks prices can keep rising and the property market would eventually experience a correction.), likewise the Chicken Littles who get stirred into fury and indignation, claiming that property prices are bound to collapse are equally foolish.

Commenter

pauldotcom

Location

Willy

Date and time

September 04, 2014, 9:25AM

Pauldotcom. I didn't have wheaties, I fried up egg, ham and tomato and had it on sourdough from Brewsters in Port Melbourne. Thanks for asking. Re the article. I also own positively geared property other than my own place, the point being made is that market distortions are in place and they include two new players, Asian investors and SMF investors. In one case, the Asians, I think they have been sold a "pup". They have been lured by off the plan builds and "back door", dare we say, suspicious purchases of established "leafy fringe" suburbs. I know first hand the quality of some of the new builds and personally I wouldn't touch them, I regard them as financial "time bombs". I do regard the Asian market as ill informed and able to be convinced to over invest in properties that are often sight unseen. None of this accounts for what is occurring in China or explain how vast sums of money have left that communist country under suspicious circumstances. Asian investors have massive exposure to our housing market, geared by cheap, questionable funding. This is unprecedented. What is also unprecedented is a generation of cashed up retirees who each think they are financial geniuses. Exposure to property is not like the share market, entry and exit is obscenely expensive. Combine the Asian experience and the SMF investors, and we have the current result, a massively distorted and overinflated market, and people are not showing discretion. In this I am discounting the influence of government. I know in ten years the prices today will seem cheap, but corrections, sometimes far reaching, do occur. No investor turns his back on potential and the exposure of Asians and SMF geniuses to real estate in unprecedented and real. If a crash occurs!

Commenter

Neil (not on radio) Mitchell

Location

Melbourne

Date and time

September 04, 2014, 10:11AM

Neil makes a good point...unemployment is rising, so people will not be able to service huge mortgages.

Commenter

Lady

Location

Melbourne

Date and time

September 04, 2014, 10:31AM

So Neil Mitchell (off the radio) does that mean we are more or less on the same page but of a different hue?I wouldn't be too concerned at the Chinese who are buying here. They are mainly buying off the plan apartments or in select eastern suburbs often with price tags way beyond the reach of many locals. The only caveat to this is whether the Chinese housing market experiences a downturn as has been predicted. Now that might have some impact on those segments of the market they are engaged in but it would only cause a ripple in the wider market.Irrespective of the distortions in the market, the fundamentals that prop up any market is supply and demand and whilst the population continues to grow, the underlying demand suggests that any correction will be moderate (at best or worst?) and not long lasting. This is a macro view but I do acknowledge there are some cowboys in the market on relatively modest incomes who believe juggling the finances on 6 - 8 or more heavily geared investment properties is a smart thing to do. In a correction they will get burnt whilst responsible, conservative investors will sail through unscathed.

Commenter

Pablo

Location

Willy

Date and time

September 04, 2014, 11:48AM

@Neil"The lure of tax avoidance through negative gearing (only in Australia do the wealthy get a "leg up"). "Yeah -- tax avoidance. Get your jealous head out of the sand. Firstly, we pay out of pocket for all the expensec. Secondly, there is a little thing called CGT. Even at 50% reduced rate, it is more than tax returns we get. And "leg up" you are talking about is not for the wealthy, it is for the smart ones. I got my first property when I was on pretty average wage and had young family. And I am not alone.